Input tax credit that survives scrutiny
Monthly reconciliation against GSTR-2B means mismatches are chased while the vendor can still correct them, rather than at the annual return.
Finance Function
Accounts Payable (AP) Management
A controlled payables cycle covering vendor master hygiene, three-way match, GSTR-2B reconciliation, TDS deduction discipline, MSME payment terms under Section 43B(h), and a scheduled payment run your own signatories release.
Overview
Payables looks like the simplest part of finance. It is where the most money leaks, and where the tax consequences arrive a year late.
The pattern repeats across companies of this size. Invoices are approved on the basis of who asked for the purchase rather than what was received. Input tax credit is claimed on invoices that never appear in GSTR-2B, then reversed under scrutiny with interest. Tax is deducted at the wrong section or deposited after the seventh. Micro and small vendors are paid on the same terms as everyone else, and the disallowance under Section 43B(h) surfaces in the tax computation months after the year has closed.
This engagement puts a control cycle around the whole payables run: vendor onboarding, matching, tax deduction, credit eligibility, MSME terms and a scheduled payment run your team releases.
Scope of engagement
Scope is set against your monthly invoice volume, vendor count and the number of locations or GST registrations involved.
Each additional GST registration is scoped as a separate reconciliation stream.
- Vendor master audit: duplicate detection across name, PAN and bank account, dormant record closure, GSTIN validation, and bank detail change control with independent confirmation
- Vendor onboarding pack: PAN, GSTIN, Udyam registration where applicable, bank details, MSME self-declaration and the agreed payment term recorded on the record itself
- Three-way match between purchase order, goods receipt and invoice, with a service receipt equivalent for non-goods purchases, and weekly reporting of every exception and tolerance override
- Duplicate payment controls tested against invoice number, vendor, amount and date, applied before the payment run rather than after
- GSTR-2B reconciled against the purchase register each month, with mismatches classified as not reported by vendor, reported in a later period, reported under a different GSTIN, or wrongly recorded in your own books
- Input tax credit eligibility screened against the conditions in Section 16, including receipt of goods or services and the supplier’s reporting, together with blocked credit under Section 17(5)
- Rule 37 monitoring where consideration remains unpaid beyond one hundred and eighty days, with the reversal and reclaim tracked
- Reverse charge identification on goods transport, legal services, director remuneration, sponsorship and import of services, with the self-invoice and payment control in place
- Tax deducted at source applied at the correct section, including 194C, 194J, 194H, 194I, 194Q and 195, with lower deduction certificates recorded and applied
- TDS deposit calendar against the seventh of the following month, challan reconciliation and quarterly return data prepared in Form 26Q and Form 27Q
- MSME vendor register maintained from Udyam data, with payment terms measured against Section 15 of the MSMED Act
- Section 43B(h) exposure report showing balances that will be disallowed if unpaid at year end, produced monthly rather than at the tax computation
- MSME Form 1 half-yearly data pack for outstanding dues beyond forty-five days, prepared ahead of the October and April deadlines
- Payment run built to a published calendar, with the approval matrix applied and every line traceable to its match and approval
- Vendor ageing, DPO trend, accrual schedule for unbilled receipts and a monthly statement reconciliation for significant vendors
Deliverables
- Vendor master audit report with duplicates, dormant records and validation failures listed
- Vendor onboarding pack and bank detail change control procedure
- Weekly three-way match exception report with owner and age
- Monthly GSTR-2B reconciliation with a classified mismatch register and vendor follow-up list
- Input tax credit eligibility summary, including blocked credit and Rule 37 tracking
- TDS deduction summary by section, challan schedule and quarterly return data pack
- MSME vendor register with Udyam references and agreed terms
- Section 43B(h) exposure report with the balance at risk by vendor
- MSME Form 1 data pack for each half-year period
- Payment run schedule with the approval trail attached
- Vendor ageing, DPO trend and accrual schedule
- Monthly payables pack with commentary
Process
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Diagnostic
We examine the vendor master, twelve months of purchase and payment data, the last four GSTR-2B files against the purchase register, the TDS return history and the current creditor ageing. Duplicate payments, unmatched credit and MSME exposure are quantified.
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Vendor master remediation
Duplicates are merged, dormant records are closed, missing PAN, GSTIN and Udyam data is collected, and payment terms are recorded on the vendor record so they can be enforced rather than remembered.
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Control design
Match rules, tolerance limits, approval matrix, TDS section mapping and the payment calendar are agreed and documented. Where your system can enforce a rule, it is configured to; where it cannot, the manual control is written down.
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Running the cycle
Invoices are matched and coded, exceptions are reported weekly, the GSTR-2B reconciliation runs monthly, TDS is computed for deposit before the due date, and the payment run is prepared for your release.
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Monthly and half-yearly review
Ageing, DPO, credit mismatch and the 43B(h) exposure are reviewed with you each month. The MSME Form 1 data pack is prepared ahead of each half-yearly deadline.
Benefits
No year-end disallowance surprise
MSME balances at risk under Section 43B(h) are visible every month, so the decision to pay or accept the disallowance is made deliberately.
Fewer wrong payments
Match discipline, duplicate screening and bank detail change control remove the three routes by which money most commonly leaves for the wrong reason.
Payment terms used on purpose
A published payment calendar turns days payable into a treasury decision instead of a by-product of how long approvals took.
Industries served
Manufacturing brings a large MSME supplier base, subcontracting, job work movement and goods receipt timing against invoice date. Retail and e-commerce brings high invoice volume, logistics and marketplace fee invoices, and credit note handling. Healthcare brings consumables, equipment maintenance contracts and consultant payments with their own deduction treatment. Real estate and infrastructure brings running account bills, retention, mobilisation advance and works contract taxation. Technology and SaaS brings overseas software subscriptions, reverse charge on imported services and withholding under Section 195.
Typical timeline
- Diagnostic and exposure quantification: 5 to 8 business days
- Vendor master remediation: 2 to 4 weeks, driven by vendor count and missing data
- Control design agreed and documented: within the first month
- Match, reconciliation and payment run cycle operating: month two
- First full monthly payables pack including 43B(h) exposure: end of month two
Engagement model
Contracted as a monthly retainer with a minimum term of three months and thirty days written notice on either side. Fees are fixed against the scoped invoice volume, with a review point each quarter if volumes move materially.
Delivery is virtual, through transaction-level access to your accounting system and a shared exception register. Preparation and release stay separate: we prepare, your authorised signatories release, and the approval trail is retained with the payment run.
What is not included
- Releasing payments. We prepare the run; authorisation and release remain with your signatories.
- Filing of GST returns and TDS returns, and signing of either. We prepare the underlying data and reconciliations.
- Representation before GST or income tax authorities on a credit mismatch, notice or assessment.
- Commercial negotiation with vendors on price, terms or settlement of a disputed bill.
- Legal notices to vendors, contract drafting and dispute resolution.
- Recovery of input tax credit that has become time barred, or of credit lost because a vendor never filed. We can quantify it and pursue the vendor commercially, but the credit itself may not be recoverable.
- Interest computation and settlement under Section 16 of the MSMED Act as a legal claim, as distinct from recording the exposure.
- Physical verification of goods received, quality inspection and stock counts.
- Purchase decisions, vendor selection and sourcing.
- ERP licence procurement or configuration work beyond the payables controls in scope.
Where a control cannot be enforced in your current system, we say so plainly and document the compensating manual control instead of implying the system is doing something it is not.
Frequently asked questions
No. We prepare the payment run with every invoice checked, matched and approved, and hand it to your authorised signatories to release. We hold no bank operating rights, no signing authority and no access to your payment instruments. Separating preparation from release is a basic control, and we would not ask you to weaken it for our convenience.
Credit is available only when the supply appears in your GSTR-2B, which happens when your vendor reports the invoice in their own return and, for payment of tax, files it. A vendor who invoices you but does not file leaves you with tax paid and no credit. That is why vendor filing behaviour is tracked as a monthly control rather than discovered at the annual return.
Payments to suppliers registered as micro or small enterprises are deductible for income tax only in the year they are actually paid, if payment goes beyond the time limit in Section 15 of the MSMED Act. That is fifteen days without a written agreement, and up to forty-five days with one. Cross a year end with such a balance and the expense is disallowed in that year.
We collect the Udyam registration number, verify the classification and record the registration date, because status can change. We also record whether the vendor has notified you of its status, since that notification affects both the payment obligation and the interest exposure. The register is refreshed annually and at onboarding, not maintained once and forgotten.
In most systems it is configured but not enforced. Invoices are posted with tolerance overrides, goods receipts are entered after the invoice, and service purchases bypass the goods receipt entirely. We test what the system actually blocks, then report exceptions weekly with an owner. Configuration is only worth something once the override population is visible.
The opposite is more common. Vendors are usually paid late because the invoice was queued behind an unresolved match exception or a missing approval, not because a decision was taken to hold it. A scheduled payment run with a published cut-off gives vendors a date they can plan against, and it makes deliberate stretching of terms a visible decision rather than a default.
Related services
- Accounts Receivable (AR) Management for the collection side of the same working capital cycle.
- GST Advisory & Compliance where credit mismatches raise a position that needs to be argued rather than reconciled.
- Virtual CFO Services where payables discipline needs to sit inside a full close calendar and cash forecast.